Union offers loss protection on latest emerging markets fund

Germany’s Union Investment has launched an emerging market equities fund with a structure limiting calendar year losses to 10%, in another sign of groups helping clients attain risk-managed exposure to growth markets.

The managers of Union’s UniEM IMMUNO 90 product invest a portion of subscription assets in safety-oriented investments, for example Bunds or fixed term deposits.

The remaining portion will be invested in shares of promising businesses throughout emerging markets. The size of the risk budget depends on the prevailing market risk, as well as how markets and interest rates have changed.

Union said the product would suit long-term investors, with limited risk appetite, who wanted to take advantage of return opportunities in emerging markets.

Products focused on such markets launched by rival managers have taken various paths to reduce the chance, or magnitude, of losses if markets fall.

Lazard and Alliance Bernstein have multi-asset emerging markets programs, while Sauren’s approach has been a fund of emerging markets managers.

The managers of Union’s product will aim for returns from the safety assets that limit losses on the overall portfolio to 10%. So, for example, if the portfolio’s reference price at the end of a year is €120, then the protected amount for the next period would be 90% of this, or €108.

Union calls this “a dynamic security concept with active management”. The relationship between the growth-investing and protective portion will be assessed daily, to ensure the goal of protection can be satisfied.

Fund manager Grant Yun Cheng (pictured) said: “This principal has proved its worth over 15 years, even as from time to time shares fell sharply. For example all 188 IMMUNO mandates, with total value of over €18bn, have kept up their lower limit of value.”

He added of emerging markets: “Positive impetus could emanate from, among other areas, the overcoming of the dent in US growth, from which Asian and Latin American markets should profit most.”

It has been a busy week for emerging market fund launches.

London’s FMG launched the Rising 6 fund, a Luxembourg Ucits product investing in equities, ETFs and funds in Africa, Brazil, China, India, the Middle East and Russia – “the world economies showing the highest sustainable long term growth prospects” and holding 60% of the world’s population.

FMG’s fund will take exposure between 10% and 25% to each region. Arild Johanson, senior partner, said: “The Western world suffers from an ageing population, a high cost base, and an over-leveraged consumer. The Rising 6 fund invests in regions that are gaining in economic power and competitiveness versus the West.”